Customer acquisition cost (or CAC) is one of the most important metrics when it comes to growing a business. It measures how cost-effectively you can acquire customers, and is a key determinant in whether you can acquire customers at a profit.
How do you calculate CAC?
To calculate a CAC, we simply divide the amount of money we've spent acquiring customers (our acquisition cost) by the number of customers we've acquired:
While this looks to be a very simple equation, there are some things to note about it.
Firstly, there are two ways to define # Customers Acquired:
- We could define it as the number of customers that we can attribute to our acquisition efforts (sales and marketing et cetera). Our CAC then becomes the amount we have to spend on these acquisition efforts per attributable customer that they've driven.
- We could alternatively define # Customers Acquired as the total number of customers acquired by our business in some time period. Our CAC is then no longer a measure of our acquisition efforts specifically, but an aggregate-level metric that describes how much our business spends per customer acquired.
Either of these approaches is perfectly fine; which you take just depends on what you want to measure.
An example calculation
To let this sink in, let's run through a quick example.
Let's say that:
- You're running a SaaS business which spent $2.5k on marketing and $5k on sales last quarter.
- You acquired 30 new customers last quarter.
We can plug these values into our equation from earlier to work out what our overall customer acquisition cost is:
Now remember that earlier one we drew a distinction between two types of CAC that we could calculate, an overall CAC versus an acquisition-specific CAC.
Perhaps it turns out that 25 of our new customers found us as a result of the capital we spent on marketing and sales, and so are directly attributable to that spend.
If this were the case, our acquisition-specific CAC would be:
Our acquisition-specific CAC will always be higher than (or equal to) our overall CAC. Just how much they differ by depends on how many customers you acquire as a baseline, without spending anything on acquisition.
Modelling customer acquisition cost in Causal
Causal is an interactive modelling tool, which lets you build fully customisable financial models for your SaaS business.
The below is an example of what a customer acquisition cost model might look like in Causal. You can adjust the inputs at the top of the model to see how they affect the charts.
If you want to get under the hood, and see exactly how the model works, you can also click Use this template in the top right of the model.